Use This Information for Question That Refer to the Sporting

question 21

Multiple Choice

Use this information for question that refer to the Sporting Products,Inc.(SPI) case. Randy Todd,marketing manager for Sporting Products,Inc.(SPI) ,is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers.For example,SPI sells basketballs to Wholesale Supply for $8.00.Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers,like Robinson's Sporting Goods,use a 33 percent markup to arrive at the price they charge final consumers.However,one fast growing retail chain,Sports Depot,only uses a 20 percent markup for basketballs,even though it pays Wholesale Supply the same price as other retailers.Furthermore,Sports Depot occasionally lowers the price of basketballs and sells them at cost-to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products.For example,Sports Depot prices all of its baseball gloves at $20,$40,or $60-with no prices in between.There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out.The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money.For example,a service organization at a local college bought 2,000 tennis balls printed with the college logo.Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo.The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans.For example,SPI is considering adding tennis racquets to the lines it produces.This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000.The variable cost to produce a tennis racquet would be $20,but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each.That would allow most retailers to add their normal markup and make a profit.However,if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
SPI pays its salespeople a commission on each product they sell.The commission is:

• A) part of the total cost - but not specifically a fixed or a variable cost.
• B) part of the total fixed cost.
• C) not included in figuring average cost.
• D) a variable cost.
• E) none of these alternatives is correct.

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Definitions:

Aggregate Planning

A process in operations management aimed at determining optimal production levels, inventory, and workforce to meet anticipated demand.

Advanced Planning Systems

Sophisticated software tools designed to assist in the planning and optimization of operations, logistics, supply chain, and inventory management.

Data Quality

The measure of the condition of data based on factors such as accuracy, completeness, reliability, and relevance, impacting its usefulness in decision-making.

Aggregate Planning

A process by which a company determines ideal levels of capacity, production, subcontracting, inventory, and stockouts to meet demand over a specified timeframe, generally medium term.